Andy Burnham has appointed John Healey as chancellor, replacing Rachel Reeves, in a cabinet overhaul that sent the UK’s 10-year borrowing costs above 5% for the first time in days. The move signals the new prime minister is gambling on a trusted ally to navigate the high-wire act of fiscal credibility and his own ambitious spending plans.
The rise in government borrowing costs on Monday was not huge — other European economies did not see the same — but it highlighted the acute sensitivity of markets to Burnham’s suggestion that he would use “flexibility” in his borrowing rules. That flexibility, according to the economics editor Faisal Islam, relates to how certain financial institutions are treated in green energy policies, effectively exempting some borrowing from debt measures. It could be extended to housing and other infrastructure.
“Andy Burnham replaces Rachel Reeves with John Healey as chancellor as UK borrowing costs rise.”
Healey, a surprise choice for Number 11, spent half a decade in Gordon Brown’s Treasury and was intimately involved in that era’s Regional Development Agencies before they were scrapped by the coalition. He resigned as defence secretary last month over funding, having called for more defence spending — money that had sometimes come from cutting domestic infrastructure. How he will square that circle as chancellor remains an open question.
Downing Street is stressing that Burnham and Healey “have the same outlook” on economic stability, the current fiscal rules, reindustrialisation, devolution, and backing British jobs and industry. The prime minister has said Tuesday’s cost of living announcements would be paid for — meaning either a tax rise or a spending cut — and the markets will quickly see what he prioritises.
In his first comments as chancellor, Healey told broadcasters he would work “in lockstep” with the new PM “to meet the fiscal rules with a buffer against uncertainty” and make life more affordable. He revealed he had just spoken to the Bank of England governor, Andrew Bailey.
The bond market’s reaction was a reminder that every tricky decision and trade-off is being watched by the country and the markets at the same time. Burnham’s broad-brush policy announcements are about to collide with the constraints of high office.